Why is under insurance so risky?

Business insurance should be one of the first steps any company takes when their operations get underway, but could you be at risk of underinsuring your firm?

Having insufficient cover is unlikely to be a problem until you make a claim. Without the correct level of protection in place, it's possible a claim could end up being costlier than you might have thought.

Don't forget, it's not just physical assets you need to think about.

Why is underinsurance an issue?

Underinsurance is a major problem across New Zealand, with research from Massey University and the Financial Services Council revealing the extent of the issue.

The report identified a number of reasons that might be preventing people from taking out adequate cover for their business. These include:

- Cost

- Misconception of the level of risk they face

- A lack of information relating to their business

- Unwillingness to make the necessary calculations

 

In most cases, businesses don’t realise they are underinsured.  40% per cent of SMEs fail immediately once a loss occurs, while 25 per cent do so within 12 months.

 

How do I calculate how much cover I need?

When taking out any type of cover, whether it's business interruption insurance or professional indemnity, it pays to put in the time to ensure your calculations are accurate and realistic. 

A good insurance broker will be able work with you to examine your finances and establish a suitable insurance solution that ensures you have the right level of cover in place.  And some insurance companies can integrate with third party accounting systems to automatically retrieve the financial information needed to develop a sound risk management solution with your broker, saving you time.

 

Is that all I need to do?

It's likely that you will need to reassess your business insurance policy every year.

Stock levels, number of contracts or clients, the value of assets - it's unlikely these factors will remain the same year on year, which is why a regular reassessment is the only way to stay on top of your game. 

A good broker will know the questions to ask and areas to consider to ensure your insurance solutions are adequate and you aren’t at risk of being underinsured should you have a claim.


Allan Henderson

About the Author

Name: Allan Henderson        

I’m the Leader - Business Development & Sales for Rothbury’s Wellington branch. I have over 20 years experience in the insurance industry and get a kick out of finding insurance solutions for my clients.

I enjoy leading and…
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I’m the Leader - Business Development & Sales for Rothbury’s Wellington branch. I have over 20 years experience in the insurance industry and get a kick out of finding insurance solutions for my clients.

I enjoy leading and developing people (including my 3 children although they may not appreciate my leadership skills at times – or ever for that matter) and am part of a really experienced team who have a lot of fun here in Wellington.

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Disclaimer: The articles published on this blog are designed to provide general information and do not take into account any individual’s particular circumstances. We recommend that you obtain professional advice on your requirements before making any decision about a financial product.

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